High Bank Fees Give Wal-Mart a Money Aisle

A Wal-Mart Money Center in Dickson City, Pa. The Money Center charges 1 percent to cash a check under $300, and $3 to cash a check from $300 to $1,000.Credit
Laura Pedrick for The New York Times

DICKSON CITY, Pa. — Americans say they are fed up with banks. They are protesting on Wall Street and raising a ruckus over outsize fees. Now there is a surprising beneficiary: Wal-Mart.

Geoffrey Cardone, a 26-year-old factory worker, said he dumped his bank account because he felt that he was being nickeled and dimed by fees. His new payday ritual includes a trip to the Wal-Mart here in northeastern Pennsylvania.

“It’s cheaper,” said Mr. Cardone, who was charged a flat fee of $3 to cash his paycheck. Many check-cashing stores keep a percentage of the check, which tends to be higher.

The Wal-Mart here has a clerk in a brightly painted Money Center near the entrance, like more than 1,000 other Wal-Marts across the country. Customers can cash work and government checks, pay bills, wire money overseas or load money on to a prepaid debit card. At most Wal-Marts without dedicated Money Centers, the financial services are available at the customer service desks or kiosks.

Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it.

Even before the recent outcry against banks, the services had become popular with cash-poor customers, many of whom never had a bank account and found the services more affordable than traditional check-cashing operations. Now newcomers to the ranks of the banking disaffected are helping to swell the numbers, Wal-Mart officials said.

The run from banks is happening elsewhere, too. In the last four weeks, as anger over debit card fees festered, more than 650,000 customers signed up for credit unions, according to the Credit Union National Association. The association was still tallying how many additional consumers had signed up on Bank Transfer Day, an initiative on Saturday that took shape after Kristen Christian, a banking customer upset by fees, set up a Facebook page.

“We have a tremendous opportunity ahead of us, and it’s largely due to what you’re seeing around us happen in the industry,” said Daniel Eckert, the head of Wal-Mart Financial Services. “We’re not a bank, but we can serve a lot of types of functions you would see someone go into a bank for.”

Wal-Mart says it has no intention of reviving its plans to become a full-blown bank that could make loans and accept federally insured deposits. But the retailer has obtained bank charters in both Mexico and Canada, leading some bankers to suggest the company is laying similar groundwork in this country.

”It’s the proverbial camel’s nose under the tent,” said Terry J. Jorde, senior executive vice president at the Independent Community Bankers Association. “Once they get in and offer some financial services, they will continue to push for other products.”

Wal-Mart said it was simply offering financial products for less than its competitors, much the same way it does for underwear, detergent and milk. Wal-Mart does not produce the financial products, but sells them on behalf of financial firms. In doing so, the retailer is able to avoid financial regulations and, because of its size, offer steep discounts.

For instance, it offers prepaid debit cards via the Green Dot Corporation. The cards cost up to $4.95 to buy and $5.95 a month to maintain at other retailers, while at Wal-Mart they cost $3 to buy and $3 a month to maintain.

Photo

Johnell Cremard, 18, in the Dickson City Wal-Mart. “I don't trust my bank,” she said. “They miscounted my money twice.”Credit
Laura Pedrick for The New York Times

Wal-Mart officials declined to provide details on how much money it makes from financial services, or how many customers it serves. However, company officials and outsiders both said Wal-Mart’s financial products are gaining share.

“It is a big focus,” said Tien-tsin Huang, an analyst at J.P. Morgan. “They’ve invested in these Money Centers, and they’ve been very, very successful; they’ve all adopted the low-cost, low-prices model, and I think it’s brought in a lot of traffic that they normally wouldn’t see, meaning the lower-end demographics that typically use check-cashing services at rival stores.”

He added, “It’s clearly growing a lot faster than what we normally see for check cashers.”

Jennifer Tescher, chief executive at the Center for Financial Services Innovation, which focuses on finding financial services for those not well served by banks, said Wal-Mart brought much-needed competition — and lower fees — to financial services.

“I think it’s one of the best things that has happened in the last 10 years for underserved consumers,” she said. “There is now much more choice in the marketplace for consumers, where they can vote with their feet.”

In research conducted a year and a half ago, Wal-Mart found that more than 60 percent of the customers using its financial services had bank accounts. When Wal-Mart asked those people how much their banking activities cost them over the last six months, the answer was between $200 and $400, Mr. Eckert said, with overdraft fees, minimum-balance charges and so forth.

Here in Dickson City, just north of Scranton, Pa., many customers said Wal-Mart had become their de facto bank, even if it technically is not one.

Courtney Houlihan, 24, said she dropped her bank account because of the constant fees, including $400 for overdrafts. She now comes to Wal-Mart to cash her checks.

Not every customer gushed. Marc Roman, 33, came into the Money Center to load his prepaid debit card and was surprised by what he called “hidden fees.” He put $300 on the card and was charged $9 — $3 for loading the card and $6 in maintenance fees for the previous two months.

Even so, there is no disputing that the fees at Wal-Mart are competitive. Some check-cashing operators say the prices are so low that they cannot imagine how it makes money. Clifford Schein, president of Cliff’s Check Cashing in the Dallas area, said his firm charged an average of 1.5 percent of the value of the check to cash it. “Their price is not sustainable to make a profit,” Mr. Schein, said. “If you look at the check cashing itself, it’s like a dumping price.”

Richard Hunt, president of the Consumer Bankers Association, said he was not so bothered by Wal-Mart’s prices as by the fact that it does not face the same regulations as banks. His association has raised the point with the new Consumer Financial Protection Bureau, which is considering how to regulate nonbank financial entities.

“If they want to enter into the field, we welcome them to it,” he said. “Just make sure they play by the same rules.” For Wal-Mart, which has been struggling with sales and foot traffic, turning stores into quasi-banks has one indisputable advantage: more shoppers with money in their pockets.

“I cashed my check,” said Barbara Reif, who was with her husband in Dickson City. “And now I’m going to go shopping.”

Correction: November 10, 2011

Because of an editing error, an article on Tuesday about Wal-Mart’s expansion into financial services misidentified the organizer of Bank Transfer Day, an initiative to abandon traditional banks. It took shape after Kristen Christian, a banking customer upset by fees, set up a Facebook page. It was not organized by people associated with Occupy Wall Street, though many of those protesters supported her idea.

A version of this article appears in print on November 8, 2011, on page A1 of the New York edition with the headline: As People Shun High Bank Fees, Wal-Mart Unexpectedly Gains. Order Reprints|Today's Paper|Subscribe